Developing a Blue Sea Strategy

Introduction

Currently many companies have to face the task of fighting with steadily increased competition in their sectors. This high amount of competition often leads to a high cost and price pressure which often brings about low margins for the companies. These market segments are called the red oceans. One probability to break out of the red oceans and to increase the margins for the company can be treated by developing a Blue Ocean. Such a Blue Ocean is a market space where the competition is irrelevant.

Aim

The aim of this paper is to clarify how to produce such a Blue Sea and discuss the amount of novelty of the Blue Ocean strategy. On the main one palm this will be done by explaining the owed theory. Alternatively two circumstances of innovative companies will be described and analyzed on basis of the Blue Sea strategy.

Blue Ocean Strategy

Concept

The market place is divided into two categories that happen to be called oceans: Blue Oceans and red oceans.

Red oceans will be the known market space as it is out there today, with all the current various companies. Competitive rules are defined and barriers are clear and accepted. Competition is available among players to gain a bigger share; a lot more players are on the marketplace, the fewer potential customers for earnings and expansion is existent. "Cutthroat competition turns the red sea bloody. "

Blue Oceans on the other hand represent the contrary - they are the undiscovered market space with establishments that aren't existent today. Demand is not created by competitive rivalry, because the rules of the overall game are yet to be establish. There is considerable opportunity for profitable growth because of the deep potential of market space that is not yet explored.

To be successful in monetary performance most companies are laying the concentrate on competitive strategies, good deal of of passion is devote to analyzing and outperforming rivals. While using vocabulary of the authors - their emphasis is on red sea strategies. In the foreseeable future this will never be enough to make it through; in addition to swim in a red ocean companies need to make Blue Oceans. The next image illustrates the major distinctions between red and Blue Oceans.

Image 1: Comparability of Red Sea with Blue Sea strategy

Value Innovation

The basis of the Blue Ocean Strategy is called Value Invention. Competition is made irrelevant by creating value for both clients and the company. Buyer value is established by the power and price that the business offers to the buyer; value to the business is created from the purchase price and its own cost framework - therefore only if those two variables are aligned the strategy works. The innovation of an product/ service must create value for the marketplace and eliminate features that aren't valued by the current market. New and uncontested market space is made accessible by simultaneously differentiate and minimizing costs. This strategy is contrary to common management strategies which suggest that companies can either create value to customers at higher costs or create acceptable value at lower costs. Based on the authors "Value Technology is a technique that embraces the whole system of a company's activities. " Image 2 illustrates Value Development.

Image 2: Value Invention

Analytical tools and framework

There are three basic tools that will help companies to build a Blue Sea Strategy.

The strategy canvas

The strategy canvas is an instrument that helps to build a Blue Ocean Strategy. It features the existing situation in the known market space and shows the offering level that potential buyers receive across several key competing factors. By illustrating these factors in a straightforward matrix a visual explanation in form of the value curve is visible. This value curve shows a company's comparative performance within its industry's factors of competition. By illustrating the existing situation of a business the strategic concentrate can be shifted away from current competition to alternatives and noncustomers, a redefinition of the industry can be made. Image 3 illustrates a technique canvas with a good example of an Airline.

Image 3: Strategy Canvas

The four activities framework

This tool uses four key questions to lead to a fresh value curve:

"Which of the factors that the industry takes for granted should be eliminated?

Which factors should be reduced well below the industry's standard?

Which factors should be increased well above the industry's standard?

Which factors should be created that the industry hasn't offered?"

The first two questions give an insight in how to reduce the cost structure compared to other players in the industry. Question 3 and 4 give perception into how to lift up buyer value and create new demand.

The eliminate-reduce-raise-create-grid

This tool is supplementary to the four activities framework. It gives companies the likelihood to act on all questions responded to before to make new value. The four factors of what things to eliminate, reduce, increase and create are placed in a matrix and by that scrutinize every factor the industry competes on.

Formulating Blue Oceans strategies

Reconstruct market boundaries

In order to break from the competition the first principle is to reconstruct market limitations. The challenge is to find likelihood of Blue Ocean opportunities. During carrying out research across various industry areas the creators found a simple method of remaking market restrictions, the six path framework. This platform does apply in all types of industries and all are based on taking a look at data from a fresh perspective. These are the six pathways:

"Path 1: Look across alternate industries

Path 2: Look across tactical groups within industries

Path 3: Look across the string of buyers

Path 4: Look across complimentary product and service offerings

Path 5: Look across efficient or emotional charm to buyers

Path 6: Look across time"

By analyzing each one of the single paths companies will be able to get an perception into how to start Blue Oceans by rebuilding market realities and leave behind normal limitations of competition.

Focus on the top pictures, not the numbers

The method of the strategic planning process is based on drawing a technique canvas, as it is discussed in the portion of analytical tools and platform of this record. A set up process for creating a strategy canvas has been developed, which is called the Visualizing Strategy. As the name indicates, this process uses visual stimulation with the reason to unlock people's creativity. The main focus here's laid on the picture as a whole somewhat than on described numbers and operational details.

Reach beyond existing demand

To achieve a maximization of the size of the Blue Sea you are creating the concentrate should be laid on two things: The analysis of non-customers and learning strong similarities of what purchasers' value. This is a reversed approach to common strategies, where the concentrate is on customers and customer variances.

The three tiers of non customers

The task is to discover who the non-customers are and get a profound knowledge of them. The authors summarize three tiers of non-customers that eventually can be altered into customers. The first tier of non-customers is closest to your market and would stay and increase their frequency of purchases if the jump in value would be offered to them. These non-customers generally known as "soon-to-be". The next tier of non-customers is further away from your market and aware of offerings in it but has consciously voted against them. These non-customers are also referred to as "refusing". The 3rd tier of non-customers is farthest from your market and has never considered its offerings as an option. These non customers are also referred to as "unexplored".

By analyzing each of the three tiers an understanding of the non-customers can be developed to get them into the market and increase your Blue Ocean.

Get the tactical sequence right

The fourth rule of Blue Ocean Strategy focuses on the task to build a sustainable business model that can make income on your Blue Ocean idea. The theory here is to utilize sequences and key standards within a collection to reduce business model risk. Each series has a key question that should be asked. If replied with "no" the sequence needs to be reshaped. If answered with "yes" you can move on to the next sequence. The four sequences are:

"Buyer power: Is there exceptional buyer electricity in your business idea?

Price: Is your price easy accessible to the mass of purchasers?

Cost: Is it possible to attain your cost concentrate on to profit at your tactical price?

Adoption: What exactly are the adoption hurdles in actualizing your business idea? Are you addressing them up front?"

With this sequencing as a starting point further analyzing of strategic charges, target costing and finally the profit model is developed.

Executing Blue Ocean Strategy

Overcome key organizational hurdles

The obstacle to perform the strategy of Blue Oceans is significant, since there are changes created from the traditional way of doing things. The creators present four common hurdles in the execution: The cognitive-, political-, motivational- and learning resource hurdle. Coping with those obstacles in form of hurdles with tipping point management is the main element to make Blue Sea Strategy happen doing his thing.

Build execution into strategy

The sixth principle of the Blue Sea Strategy is about building commitment and trust into the strategy from the start. The concentration is laid on a good process as an integral changing that distinguishes successful Blue Sea Strategy steps from the ones that failed.

Case analysis

In this section, we intend to express and analize two conditions of progressive companies (Virgin Galactic and Petrobras) based on the Blue Ocean theory.

Virgin Galactic

Description of Virgin Galactic

Virgin Galactic is a company which belongs to the Virgin Group. This group was founded 1970 by Sir Richard Branson which is one of the leading brand capital raising organizations of the world. The group has generated more than 300 top quality companies in a variety of different industries, employs around 50, 000 people and made revenue of approx. US$ 18 billion in the entire year 2009. Predicated on them the success of the group derives from "the energy of the Virgin name, Richard Branson's personal reputation; our unrivalled network of friends, connections and partners; the Virgin management style; just how skill is empowered to flourish within the group. "

The Virgin Galactic company gets the goal of "making private space travel available to everyone by creating the world's first commercial spaceline. " Virgin Galactic will create, own and operate spaceships, the SpaceShipTwo. To do this goal the Virgin Group uses it experience in aviation, trip and luxury travel merging with the technology developed by Burt Rutan. The company was founded in the year 2004 and it is found in New Mexico.

The SpaceShipOne became the first private spaceship with high altitude-flights in the entire year 2004. The successor of this technology, the SpaceShipTwo, has seats for just two pilots and six passengers.

Every passenger must pay US$200. 000 with a first deposit ofUS$20, 000. At this time 340 passengers have registered because of this service. Up to now 450 folks have ever been to space, the goal of Virgin Galactic is to adopt 1, 000 visitors to space within the first yr of commercial procedure. The first commercial airfare shall start in the year 2012.

The mothership of the SpaceShipTwo, the WhiteKnightTwo, will need the SpaceShipTwo to a elevation of about 16km and then release it. At that time the rockets of the SpaceShipTwo will raise and bring it to a height around 100km. There it'll fly for about five minutes in which the passengers have a magnificent view at the planet earth and can enjoy weightlessness. Later the space ship will reduce the altitude and land at its bottom part in New Texas. The first soaring assessments of the WhiteKnightTwo were executed successfully and the SpaceShipTwo completed the first manned glide flight in Oct 2010.

At current level the company "Blue Origins" which is situated near Seattle is also working on a private space dispatch.

Analysis of Virgin Galactic

The analysis begins by discussing the Value Creativity of Virgin Galactic.

So far travel and leisure in space was available for seven specific individuals who paid in average US$ 25 million for keeping about 2 weeks at the ISS. The clear buyer good thing about Virgin Galactic is to get this to tourism designed for nearly everybody who can afford paying the US$200, 000 which is significantly less than 1% of the purchase price so far. Additionally, these space trips also add value to Virgin Galactic as it will earn US$200, 000 for each passenger having already 340 on the holding out list. Virgin Galactic clearly succeeded in making a Value Invention.

In the following the strategy canvas for Virgin Galactic will be developed to start to see the value curve compared to its competitor the stay at the ISS.

As main factors the following was defined: price, safety, request for personal qualities and easy planning for the trip. As seen in image one the Virgin Galactic company permits a more comfortable and convenient stay as the previous travel and leisure on the ISS. This is also based on the low requirements one has to fulfill to be able to execute this tourism and the lower time-investment.

Image 4: Strategy Canvas of Virgin Galactic

Considering the four action framework Virgin Galactic reduced the costs by taken out the factors that a stay static in space has to be combined with a long period and cost-intensive stay at the ISS and with cost-intensive rocket starts off. Furthermore, they created the factor that practically everybody would be able (from physical requirements ) to go to space with a minimal time-investment and a comparably low amount of money. They increased the convenience of space-tourisms to a very high scope.

In final result, they were able to dramatically reduce the costs while increasing the perceived value of the travellers which are thinking about some minutes of weightlessness and viewing the planet earth from the area.

Virgin Galactic also concentrated on the so called non-customers as the full total amount of customers was "seven" so far. They identified the implicit wish of all visitors to go to space once.

Organizational hurdles

The cognitive hurdle cannot be applied as Virgin Galactic didn't start in a red sea but directly joined the Blue Ocean with the beginning of the company. The hurdle resources will probably be not a large burden as the first traveling tests went successful, customers on the holding out list already paid close to US$7 million as first deposit and Sheikh Mansour invested US$280 million in this business. Furthermore, the Virgin Group and the talk about of New Mexico are encouraging this business. The motivation of the employees and professionals is high which is also pushed by Richard Branson personal interest in the success of the company. The political hurdle could be integrated by making new laws for required basic safety requirements. But already in 2004 the united states congress approved a law which allows passengers to travel into space with the understanding that these vehicles is probably not as safe as regular airplanes. Furthermore, the governor of New Mexico facilitates this company and the Virgin group has a high political ability.

In realization all the hurdles were handed effectively by Virgin Gallactic.

Build execution into strategy

From the beginning Richard Branson announced the vision of the company to make private space travel

year 2004.

Conclusion

In final conclusion, Virgin Galactic entered a Blue Sea from the beginning. It decreased the costs and made space travel open to everyone by creating the world's first commercial spaceline. Virgin Galactic works towards this clear eye-sight with having the first commercial flights very likely eight years after its foundation in the last travel and leisure in space and increased the value than it by leveraging especially the convenience for the customers. Moreover, it travelled over and above known customer space by offering this service for under 1% of the costs up to now. It monitored the organizational hurdles and created a solid vision from the start. Although others as e. g. Blue Origins try to create space tourisms this sea is deep blue so far for Virgin Galactic.

Petrobras

Description of Petrobras

Petrobras was proven on Oct 3, 1953 by the president of Brazil, Getєlio Vargas, to undertake oil sector activities in the united states.

In the early 1970's, the people of the Organization of the Essential oil Exporting Countries (OPEC) rose the international prices considerably, triggering the so-called Oil Shock. Because of this, the market was stressed and proclaimed by doubt.

In order to conquer the down sides, the Brazilian federal government adopted economic procedures in order to triumph over the supply of oil. A few examples of these actions were the encouragement for use of ethanol as automotive petrol and prioritizing offshore exploration and creation. With the methods, the government designed to decrease the dependency on importing a very expensive product and create a business to create jobs and exports. These tasks where directed at Petroleo Brasileiro (Petrobras) for being executed.

Producing ethanol for powering the nation

1975 marks the start of the production of Ethanol by Petrobras in Brazil looking to drive the large-scale substitution of engine oil - centered vehicular fuels for biofuels. Substituting gasoline for ethanol (created from sugarcane and manioc) led to 10 million fewer fuel - fuel cars working in Brazil, reducing the country's dependence on imported petrol.

Today Brazil is recognized as the world leader in the production of ethanol for industrial purposes, based on the most advanced agricultural technology for sugarcane cultivation on the planet and to the quantity of arable land available in the country. This year 2010, the Brazilian ethanol produced by Petrobras was chosen among the innovative biofuels because of the 61% reduction of green house gas emissions.

Pioneering in profound waters

In 1984 the business discovered one of the primary reserve in profound water ever listed in the world. The Albacora field was determined; proving the existence of giant domains nestled at great depth in Brazil. This designated the beginning in deepwater exploration for the business.

By 1986 the business, which until then purchased technology, was confronted with the task of producing engine oil at a depth of 400 meters. After surveying the market and learning there is no technology available for this depth, the business decided to spend money on developing new solutions. This was an extremely ambitious task, since, at that time, Petrobras have been discovering at depths of 150 meters and acquired programs for 1000 meters by 1990.

This project ended up being a great success and the business is currently the global leader in this field. By 2005, Petrobras models the record of drilling depth with a sloped that reached 6915 meters beyond underneath of the ocean.

Petrobras achieves self - sufficiency

In 2006 Brazil became a self-sufficient country in oil and gas production. With typically 1. 9 million barrels each day, Brazil went on to exporting more olive oil and oil products than it brought in. It was like a dream came up true, only possible because of the technological efforts and devotion of the employees. Since this point, Petrobras is the most profitable company in the Brazilian overall economy, being recognized as the eighth biggest petrol exploring company in the world.

In the upcoming years, Petrobras intends to purchase using and expanding new renewable energy sources. The collection of new jobs includes blowing wind, solar and drinking water energy options and gas hydrogen. The motive is to reduce even more the dependency on essential oil, delivering the necessary energy options to Brazil in order to support the intended progress of the forthcoming years.

Analysis of Petrobas

Petrobras success can be summed up in one word and this word is development. This company confronted the task of turning one of the primary countries in the Americas from a major consumer of brought in oil to self sufficient in oil and gas production. This strategy was based on focusing on the big picture (producing its own oil and become an exporter of petroleum) rather than locating a momentary solution for importing petrol in the 70's, when the largest crisis of olive oil prices occurred.

Value Innovation

They broke from the competition by reconstructing market restrictions. For each concern they faced, they were in a position to create and develop the necessary technology that didn't are present on the market, becoming a innovator in deepwater oil drilling. They reached beyond their existing demand insurance agencies more petrol available than they want because of their own intake.

They also created value to the united states by reducing the quantity of CO2 in 61% emitted by autos and public vehicles thanks to the benefits to ethanol and biodiesel. Brazil became a far more efficient country thanks to the use of these natural resources for running the country.

By mixing ethanol with olive oil, Petrobras has managed to increase the value for customers by creating a reduction of oil prices and by guaranteeing the essential oil resource they reduced the dependency on foreign companies.

Strategy canvas

We are determined to clarify the differences between your two largest companies of Ethanol on earth, Brazil and U. S. A. As we've mentioned before, Petrobras is the one company accountable for the creation and circulation of ethanol in Brazil.

Image 5: Stragegy Canvas Petrobas

As we can see in the body xx, Brazil is the next largest producer of Ethanol on earth (6, 500 million gallons in '09 2009 ) behind the United States (10, 900 million gallons in '09 2009 ). But, the full total area employed by Brazil for cultivating their sugar cane (3. 6 million hectares by 2006) is far less than the land employed by america (10 million hectares in 2006). This means that the efficiency per hectare is superior in Brazil than in america.

Another important things to mention is the fact that because of the combination of Ethanol and petrol in Brazil, green house gas reduction has been reduced substantially (89% ), increasing the worthiness the company provides to their customers.

Organizational hurdles

The hurdles are based on the theory brought up in the first portion of this task.

During the olive oil crisis of the 70's, the company faced the challenge of completely changing the paradigm of creation. In the cognitive hurdle, we can say that the employees realized completely the need of the company and were able to transform the company. In the second hurdle resources, we can say that the business successfully understood that they needed to invest a great amount of resources in R&D to be able to boost the efficiency of the production of ethanol and also to raise the drilling depth for engine oil extraction.

Motivating employees on the thirty-year-old job has been an enormous challenge for the company. They have were able to succeed by attaining small goals every year, increasing the amount of satisfaction and trust into the leadership of the business. Finally, the politics hurdle was supervised correctly due to the implications of the change project, involving the federal, the management and employees of the business.

Build execution into strategy

As we mentioned before, the strategy was clear right from the start: Decrease the dependency of essential oil and turn the country into a self-sufficient country. The facts speak for themselves, the complete company aligned in order to achieve the goal and it is an example about how to put into practice the Blue Ocean strategy.

Conclusion

So, why can the strategy of Petrobras be considered a Blue Ocean strategy? First of all they centered on creating value for the united states by reducing the amount of oil brought in and increasing self-sufficiency. As a consequence, they were in a position to reduce considerably the costs of gasoline in Brazil and the dependency of external factors to build up the country. They achieved this goal by innovating with techniques to reduce usage of olive oil (alternative fuels like ethanol and biodiesel) and exploit the actual the country experienced in its coasts, regardless the technology offered by the times.

In the previous twenty years, Petrobras has become a key player in the success of Brazil to attain development. The future years because of this company look really excellent, because of the investment they are doing on other different means to produce electricity (drinking water, solar and breeze), improve the efficiency of alternate fuels and by creating the required technology for increasing the depth for deepwater drilling for petrol.

Discussion

In the next the degree of novelty of the Blue Ocean strategy and the general criticism relating to this theory will be mentioned.

Analyzing the degree of novelty in the Blue Ocean Strategy

The publication "The Blue Ocean Strategy" was initially publicized in 2005 and based on the two authors based on more than 15 years of research in various dimensions of the business matter and 150 successful tactical movements spanning.

As we read above the Blue Ocean Strategy aims at creating new demand within an uncontested market space. This is done by lowering the factors of competition and offering new value to the buyer and company itself. The question is - is this really a new idea or can it just come up with components existent in theory of management of radical/disruptive innovations?

To have the ability to answer this question we first have to check out the existent theory. The foundation of the disruptive invention model is situated in Christensen's research and studies at Harvard which he posted for the first time in 1997. He identifies disruptive innovation as follows: "An development that creates a fresh (and surprising) market through the use of a different group of worth ".

He distinguishes between two types of disruptive inventions:

Low-end disruption: Focuses on customers who do not need the entire performance appreciated at the high-end of the market.

New-market disruption: Targets customers who have needs which were recently unserved by existing incumbents.

The performance improvement provided on the market has some other trajectory than the trajectory of performance improvement that the client would like. Innovators can reach those customers by offering a new group of performance value attributes that tend to be more relevant to the target customer.

Christensen at first used the term disruptive technology but changed it to disruptive technology to create the focus of the strategy to the business model alternatively than on the technology. This means that the disruptive impact a technology has gets allowed by an progressive business model. Disruptive innovation requires a independent strategy process than regular incremental creativity.

Comparing Christensen's explanation of disruptive invention and the primary goals of the Blue Sea Strategy it becomes clear that there is no radical degree of novelty existent. Blue Sea Strategy aims at creating new demand within an uncontested market space, whereas Christensen identifies it by creating a new and sudden market. One can say that those two meanings have the same meaning. Blue Sea Strategy wants to provide new value to the customer, whereas Christensen discusses offering a new group of performance value that is more highly relevant to the mark customer. Again, the meaning of both definitions is strictly the same. Another similarity is seen in both strategies looking to focus on the business model and the strategy process: The task to build a sustainable business model, and Value Advancement is a strategy that embraces the whole system (Blue Ocean Strategy) versus Disruptive invention requires a separate strategy process than regular incremental innovation (Christensen).

As one can see above, the metaphor of Blue Oceans is new, but the idea is not. Christensen's model of disruptive development was more developed before the authors of Blue Sea Strategy printed their results. But Kim and Mauborgne attempted to have a different approach in their tools and frameworks they use for executing the strategy. So as a result one can say that Blue Ocean Strategy might be considered a good additional information to approaches for disruptive creativity management. But it should always be kept in mind that the basic thought of the theory was existent already.

General criticism

On an over-all bases, it is difficult to acquire companies which may have successfully completed to use the Blue Sea strategy. It isn't a proven technique to assure success plus some companies only use elements of the theory to check their general strategy. Although, the Blue Sea strategy gives a basic structure to be able to develop a far more ground breaking company.

The writers of the book highlight some circumstances of success, nonetheless they don't explain circumstances in which their theory failed in order to find out from the problems made by the organization through the execution of the strategy. This will definitely help some companies and business owners to avoid some common mistakes, bettering the hypothesis that the writers are promoting. Subsequently, the authors try to mold the success of some companies to their theory, making a blur scenario in which readers can land to assume that the Blue Ocean strategy is the main element to success in a market filled with similar companies.

It is also argued that the creators have not uncovered some new radical technique to increase innovation in companies. We tend to believe that the writers just became a member of different ideas in one book, setting up a compendium of tales and hypothesis to explain the success of some companies that does things in different ways.

Conclusion

The theory of the Blue Ocean strategy implies that it is important to build Value Innovation to be able to accomplish a Blue Sea. This should be mainly done by creating value for the customer as well as for the company itself. The two case-studies of innovative companies illustrated the consumption of the Value Innovation and how these companies efficiently entered a Blue Ocean. Nevertheless, the dialogue demonstrated that is not really a totally new strategy but more a renaming and reframing of the "disruptive innovation concept". Furthermore, the Blue Sea strategy might not work for each business, as it was mainly developed using the examples of successful companies and adapting this strategy towards them.

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